Academic journal article Duke Environmental Law & Policy Forum

Speaking Truth to Power Company Regulators: The Consequences of Modern Regulatory Incentives and Administrative Expediency

Academic journal article Duke Environmental Law & Policy Forum

Speaking Truth to Power Company Regulators: The Consequences of Modern Regulatory Incentives and Administrative Expediency

Article excerpt

Providing modern communities with electricity is both a complex and a critical task. Therefore, the configuration of the regulatory framework, constructed by federal and state governments around the electric utility industry, has significant consequences for public expenditures and industry behavior. By altering investment incentives, policy decisions around utility regulation have equal capacity to move us towards an efficient and sustainable future or to impose needless costs on the public. State regulatory regimes, in particular, have tremendous ability to influence utility investment decisions.

The consequences of these policies were recently exemplified in Florida, where utility customers will ultimately pay Duke Energy over $1 billion in fees--including $150 million in profit--for two nuclear reactors the company has chosen not to build. (1) How did this occur in Florida when government so tightly regulates the electric utility industry? With that question in mind, this comment briefly discusses: (1) a recently enacted regulatory incentive for electric utilities and its consequences for energy conservation and industry practices; (2) the policy of expediency underlying licensing energy infrastructure projects; and (3) the level of accountability provided by judicial review of administrative action. Similarly, this comment aims to broadly examine the results achieved and the activities encouraged by these legal regimes. The fourth section argues that the confluence of the three policies listed above produces conditions that are not conducive to consumer protection or preventing environmental degradation. Throughout, we use Florida as a case study to examine the way that these issues play out on the ground.

I. Advanced Nuclear Cost Recovery--A Disincentive To Innovate

Most states grant electric uti lities a monopoly in providing energy services to the public. (2) Where investor-owned utilities are concerned, the utility is a for-profit company, often engaged in both generating electricity and supplying it to the retail market. (3) Generally, a state utility commission regulates these services and approves the rates charged to customers. (4) The purpose of these regulations is to protect consumers. (5)

Unlike most states, Florida--followed by others in the South such as Georgia and South Carolina--enacted an advanced nuclear cost recovery (ANCR) law in 2006. (6) Through the cost recovery law, First, ANCR entitles utilities to recover, prior to construction, "costs incurred in the siting, design, licensing, and construction of a nuclear power plant, including new, expanded, or relocated electrical transmission lines and facilities...." (8) Under Florida's version of this law, utilities file a request annually with the state commission to be reimbursed for costs incurred, projected, and otherwise connected with the reactors. For example, Florida Power & Light Company received authorization to charge about $17 million in advanced recovery costs related to planning and obtaining licenses in a single-plant expansion project for the year 2013 alone. (9) After the new capital project is constructed and serving customers, the utility may increase its base rate charges. (10)

ANCR includes costs related to obtaining and maintaining state and federal licenses, preconstruction materials, and equipment purchases. (11) Moreover, a utility is able to preserve the opportunity for future recovery even if its reactors have not been constructed up to twenty years after receiving federal approval. (12) Finally, as Duke Energy demonstrated, "[i]f the utility elects not to complete ... construction of the nuclear power plant ... the utility shall be allowed to recover all prudent preconstruction and construction costs incurred...." (13)

In sum, electric utilities that have long benefited from state-granted monopolies--through guaranteed customers, rates, and reasonable returns on their investments--are now shielded from the risks of investment in large capital projects through cost recovery laws. …

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